The Bank of England raises interest rates for the first time in three years to reach 4%

The Bank of England (BoE) has confirmed the expectations of analysts and markets, and has raised the base interest rate from 3.75% to 4%, its first increase after more than three years in which it had kept the price of money stable.

Inflationary pressures produced by the high increase in fuel costs, caused by the prolonged war in Iran and the blockage of goods in the Strait of Hormuz, have led the nine members of the Bank of England's Monetary Policy Committee to decide to raise rates.

The latest CPI data recorded in September stands at 3.5%, and analysts' general forecasts point to an even greater rise for the first quarter of 2027. That is, a continuation of this upward pressure. The United Kingdom's Office for Budget Responsibility forecasts inflation of 3.8% for that period, but the average of the 12 analysts consulted by the Financial Times points higher, up to 4.4%. The BoE itself suggests, in its report this Thursday, that inflation will reach 5% by the middle of next year.

“Today's rise should not be seen as the first in an inevitable and long sequence of increases,” explained BoE Governor Andrew Bailey. “It is not inevitable, but unless the conflict in the Middle East is resolved, it does not seem like it will be the last rise,” he warned.

The general increase in wages in the United Kingdom, with modest but sustained growth figures (around 0.7% in the three months prior to August, according to the Office for National Statistics), together with the announcement by Andy Burnham's Government of an increase in the minimum wage from April 2027, has contributed to this inflation pressure.

The strength of the pound

This Thursday, the pound sterling is in its greatest position of strength against the euro since the Brexit referendum was held in 2016. The high interest rate, compared to that of the European Central Bank, makes British public debt more attractive to international investors.

That, together with a slight optimism due to growth expectations and the messages launched by Burnham in recent months of greater rapprochement between London and Brussels, has made the British currency gain strength.